As the winter approaches, the price of natural gas has broken a key congestion area, which has been in place since May this year. The forward curve shows that the contango in the market remains quite elevated. The price of natural gas for January delivery is at 34 cents premium to cash price, which is currently at $3.1 per MMBtu.
The inventory buildup has been slow this year. The inventory is currently at 3.31 trillion cubic feet, much lower than last year’s record build above 4 trillion cubic feet. Stocks are currently 179 billion cubic feet lower than the level seen a year ago. The build-up period usually ends by November or at max November 2nd week and after which drawdown begins. So, the market is concerned that the inventory level will be much lower than last year.
With the break of the congestion zone, the bulls have taken control of the price that was against our expectation and the price is likely to move higher to challenge $3.5 per MMBtu area as the winter approaches.
